Case Summary
In 2011, a non-profit organization promoting “free market environmentalism” filed a lawsuit in Federal district court challenging the constitutionality of Colorado’s Renewable Energy Standard (RES). Plaintiffs claimed that the law’s core requirement that Colorado utilities obtain an increasing proportion of their electricity from renewable sources and several specific provisions violate the Commerce Clause.

In 2013, Colorado amended the RES, modifying several of the challenged provisions. In response, Plaintiffs scaled back their complaint, maintaining their challenge to the RES’s core requirement and provisions that require distributed generation and provide incentives to renewable generators that interconnect with facilities owned by a municipal or cooperative utility.

In May 2014, the Court ruled that the plaintiff organization, which includes a member coal company, has standing to pursue the challenge to the RES’s core requirement but does not have standing to challenge other specific provisions.

Turning to the merits, one week later, the court granted summary judgment to the State and environmental organization Defendants on all claims, holding that the RES’s core requirement does not violate the dormant Commerce Clause.

According to the court, a statute can violate the dormant Commerce Clause in three ways: 1) if a statute clearly discriminates against interstate commerce in favor of intrastate commerce; 2) if a statute has the practical effect of controlling commerce occurring entirely outside the State’s boundaries; or 3) if application of the Supreme Court’s Pike balancing test demonstrates that a statute imposes burdens on interstate commerce that are “clearly excessive” with the local benefits (Pike v. Bruce Church, Inc. 397 U.S. 137 (1970).). Plaintiffs’ claims were grounded in the second and third possibilities.

The Court determined that the RES does not have the practical effect of regulating extraterritorially. According to the Court, the RES cannot regulate a transaction between out-of-state entities and instead only affects out-of-state generators that freely choose to sell to a Colorado utility. The RES does not set minimum standards for out-of-state generators that wish to sell to Colorado or impose conditions on the importation of electricity into Colorado. Instead, the RES only determines whether energy purchased by a Colorado utility can qualify to meet its RES obligation.

The Court also held that the dormant Commerce Clause does not prevent a State from creating incentives to induce out-of-State companies to conduct business in a particular way. Although the Court recognized that the RES’s incentives may harm the profits of companies that produce electricity from non-renewable sources, the Court said that the dormant Commerce Clause does not protect profits of any particular business or means of production.

With regard to the Pike balancing test, the court found that the RES does not impose restrictions on the flow of electricity, and therefore distinguished cases about interstate transportation, which held that a lack of uniformity across State laws can burden interstate commerce. The Court also held that the “critical inquiry is whether the market shift [from coal to renewable sources] . . . places a greater burden on interstate commerce than is placed on intrastate commerce.” Although the Court said that Plaintiffs had provided evidence that the RES decreased demand for coal, they failed to show this decrease burdens interstate commerce. Similarly, this shift from coal to renewable sources has not resulted in a decrease in interstate transmission of energy or the size of Colorado’s electricity market. Importantly, the Plaintiffs also failed to demonstrate that any burdens on interstate commerce are “clearly excessive” to the benefits.

In July 2015, the 10th Circuit affirmed the district court’s dismissal. The panel concluded that “only price control or price affirmation statutes that link in-state prices with those charged elsewhere and discriminate against out-of-staters are considered by the Court so obviously inimical to interstate commerce” that they are per-se unconstitutional under the extraterritorial test of a dormant Commerce Clause inquiry. Because the plaintiffs offered no story suggesting how the RES disproportionately harms out-of-state businesses, and they did not allege that the RES links in-state and out-of-state prices, their claims necessarily failed.